Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.

On Monday, crude oil moved lower as concerns over the supply glut weighed on the price. As a result, light crude slipped temporary under the barrier of $40, but will we see further deterioration?

Let’s examine charts below and find out (charts courtesy of http://stockcharts.com).

Looking at the weekly chart, we see that although crude oil extended losses yesterday, the previously-broken long-term black declining support line continues to keep declines in check.

Can we infer more from the daily chart? Let’s check.

From this perspective we see that although crude oil moved little higher after the market’s open, the commodity reversed and declined sharply, slipping slightly below the barrier of $40. Despite this bearish signal oil bulls didn’t give up and manage to push the commodity above this important level in the following hours. In this way, crude oil invalidated earlier small breakdown and closed the day above $40, which is a positive signal. At this point it is also worth noting that yesterday’s drop took light crude to the area, where the size of the downward move corresponded the height of the black declining trend channel, which may decrease oil bears’ pressure and translate into rebound in the coming day(s).

Summing up, crude oil extended losses and reached the solid support zone (created by the long-term black support line and the barrier of $40), which could trigger a reversal and rebound in the coming days. Therefore, waiting at the sidelines for another profitable opportunity is justified from the risk/reward perspective.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

We will keep you – our subscribers – informed should anything change.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main market that we provide this level for (crude oil), the stop-loss level and target price for popular ETN and ETF (among other: USO, DWTI, UWTI) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DWTI for instance), but not for the “main instrument” (crude oil in this case), we will view positions in both crude oil and DWTI as still open and the stop-loss for DWTI would have to be moved lower. On the other hand, if crude oil moves to a stop-loss level but DWTI doesn’t, then we will view both positions (in crude oil and DWTI) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the sings pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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